Posted at 7:52 PM on February 11, 2011
by Paul Tosto
Filed under: Housing & mortgages
Today he posted data showing that 27 percent of home sales closed in the Twin Cities last month went for cash.
That's extraordinary. Cash buyers, he notes, made up only four to five percent of sales in 2006 and 2007.
There's no doubt cash moves houses and that's generally good in markets where houses for sale are stacking up. Local data show overall median home sale prices falling and average days on the market rising.
"Cash buyers are helping soak up our extra home inventory and their significant activity in this market suggests that the smart money people with deep pockets consider this housing market a good investment," Dickinson writes.
But who's buying and why? Will the cash dealing bring stability or more turmoil to Twin Cities neighborhoods? Those are the questions we've asked for months.
There's been concern that investors flush with cash and in no need of a mortgage are muscling out traditional home buyers and that the trend will hurt neighborhoods and communities.
Competition with cash-laden investors makes it difficult to get foreclosed properties into the hands of homeowners," Thomas Streitz, director of housing policy and development for Minneapolis, told a U.S. House subcommittee almost exactly a year ago.
The city was trying to prevent the turnover of single family homes to rentals but sellers were taking lower cash offers over the higher offers of developers working with the city's Neighborhood Stabilization Program. "A homeowner with a FHA approved mortgage with a 30 day approval time does not compete with cash-in-hand private investors," he wrote.
We're going to try and follow up with Streitz next week to see if anything's changed. But the competition from cash has only increased.
Nationally, the cash-for-homes trend is easy to see.
The group recently reported investors accounting for 20 percent of transactions in December, up from 15 percent a year earlier.
Cash deals across the U.S. hit 29 percent in December, up from 22 percent in December 2009. "All-cash sales have been consistently high at about 30 percent of the market over the past six months," NAR said.
There are two basic ways to look at this.
This is how markets work. People with cash are taking advantage of great deals, snapping up properties and, at the same time, buoying the market.
We're turning a generation of young would-be homeowners into renters. Odds are most of the properties bought for cash used to hold homeowners and eventually will hold renters.
In the worst case, we're watching the regression back to a renting underclass. We can't get out of our heads the comments of one anonymous Realtor from the NAR's March Confidence Index:
Serious challenges in getting owner occupants into foreclosed properties due to issues with repairs and financing. The result is most foreclosures will sell low to cash investors many out of state who become slum lords.
The thing is we don't know the intentions of the folks with cash. Are they landlords? Renovators who plan to fix and flip the properties? Seniors helping their grandchildren buy a first house?
"There are some cash buyers buying for owner occupancy -- not a ton, but there are some," says Dickinson.
He understands the public policy concern. But "all things equal, if a city has to choose between a vacant foreclosed home and an occupied rental, usually the rental is a better (choice). Poorly managed rentals can be a problem but a rental that's got a fairly decent tenant and is a managed property is much better than a vacant house."